Question

Based on your understanding of the uses and limitations of ROE, a rational investor is likely to prefer an investment option that has:
A.High ROE and high risk
B.High ROE and low risk

Answer 1

Answer:

B is the correct option High ROE and Low Risk

Explanation:

The return on equity shows the ability of the firm to earn for equity investors. If two investments have same ROE and one has lower risk. Then the rational invester will choose that investment which has a low risk.